Compose a 2500 words assignment on Discuss Needs to be plagiarism free! Since every business organization has a tendency to focus its attention primarily on direct material cost and direct labor cost, the incidental and accidental costs may be disregarded. This is a costly error. Variable overhead costs contribute a significant percentage to the overall cost of production. This particular aspect needs constant watching by the management because it is here that cost-cutting measures need to be adopted in advance to maximize profit margins.
Next, fixed overhead costs must also be managed with much care because here electricity and gas costs might rise even without the knowledge of the management. A significant percentage of businesses are faced with the threat of closure nowadays because of the rising energy costs. Finally, cost centers or cost drivers as they are known in accounting jargon must be identified before costs are allocated to them. Failure to do so will lead to confusion as to which area of the business has higher costs and which less.
* Operating Leverage may be defined as the ability of a firm to use its fixed operating costs (rent etc.) to magnify the effect of changes in sales on its earnings before interest and tax (EBIT). The formula for Degree of Operating Leverage (DOL) is 3.
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The number of cookies of various categories that can be baked during 180 days is 1792 x 180 = 3,22,560 while my budgeted annual sales stand at 3,87,082 (the margin of safety output). I assume that the difference of 64,522 cookies can be baked with some overtime work assigned to full-time workers.
My calculations of the break-even points or output levels are based on a realistic assumption of what is desirable and achievable given the capacity constraint imposed by the 112 batches of cookies per 30 minutes. Working hours per day cannot be stretched beyond 8 unless overtime payment is given to those workers who willingly work after the 8-hour shift during the night. My calculations of costs both fixed and overhead are based on realistic estimates that included the additional costs of selling cookies such as the cost of 0.
25 cents per cookie sold. Also, I have taken into consideration the total fixed cost as equivalent to $ 40,000 per year excluding the depreciation charge. I have assumed a breakeven point of 70,000 cookies per annum of type C1 which is priced at $ 0.50. .